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The Lloyds Bank share price has crashed below 30p! Here’s what I think comes next for it

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If things weren’t bad enough for the FTSE 100 banking biggie Lloyds Banking Group (LSE:LLOY), they just got even worse. Its latest financial results, released earlier in the week, are disappointing. The Lloyds Bank share price, which had been hovering around 30p, fell even further as a result. As I write it’s at 26.3p. 

Lloyds Bank share price falls on poor results

LLOY has been flailing for a long time, but it’s now lower even by its own standards. Compared to its average level in 2020, the share price is down by 67%. The crash in the share price is understandable. Lloyds Bank reported a pre-tax loss as it made higher provisions. Even though a tax credit managed to keep the bank profitable after tax, the profit amount has shrunk compared to last year. 

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There’s little in the outlook to encourage investors for the future either. It does point to “early signs of recovery in the Group’s core markets” but also adds that “the outlook remains highly uncertain”. I interpret this to mean that LLOY’s performance may continue to slump in the near future.

The economy is still weak, for one thing. Further, with the furlough scheme set to be withdrawn in the coming months, the true economic impact of the pandemic will be understood only later. At any rate, it’s unlikely that borrowing will come back in a big way soon. Or deposits for that matter. Interest rates are low as well. In other words, banks are hit on all sides. 

It’s actually pricey now

Some investors could see value in the Lloyds Bank share price, which seems to be at low levels. But the better metric to consider is the price-to-earnings (P/E) ratio, which is at 11.5 times for LLOY. Now this isn’t the highest P/E around, but considering that some better performing companies are trading at lower ratios, it actually looks expensive to me. 

Moreover, the results discourage income investors as well. With shrinking profits, it’s less likely to be able to pay dividends in the near future, even if the regulator gives it the green light. In any case, it mentions in the latest results that any dividend decisions will only be made at year-end. So the earliest that investors can hope for dividend resumption is 2021, which isn’t good news for the Lloyds Bank share price.

Linked to the economic slump

If the economic slump turns out to be a short-term one, it may well happen that banks bounce back quicker than expected. Initial data reports show that consumers have started spending again. But I wouldn’t bet on the recovery. In May, economists expected the UK’s GDP to increase by 5.5% as construction sites were reopened, but the actual increase turned out to be only 1.8%. So, there are arguments both ways. I’d much rather put my money in healthier growth stocks right now than risk the continued tumble in the Lloyds Bank share price.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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